“The government has decided to dismiss the indictment,” prosecutor Allen Chiu told the judge shortly before the jury was to be seated on the third day of trial.

The announcement came a day after a whirlwind of legal jockeying in the case against defendant Matthew Crippen, a 28-year-old Southern California man. The government charged that Crippen, a hotel car-parking manager, ran a small business from his Anaheim home modifying the firmware on Xbox 360 optical drives to make them capable of running pirated or unauthorized games.

It was the nation’s first jury trial to test the anti-circumvention provisions of the 1998 Digital Millennium Copyright Act as applied to game consoles. The law makes it a crime to offer a product or service that circumvents a technological measure designed to protect copyright material. Each of the two charges carried a maximum five years.

“It still has not hit me yet,” Crippen said outside court, moments after Chiu dismissed the indictment.

US District Judge Philip Gutierrez had blasted the prosecution’s case Wednesday, prompting a brief recess for prosecutors to decide whether they would forge ahead. The prosecution’s decision to continue would come back to haunt them as the government’s first witness ultimately unraveled their case.

Witness No. 1, Tony Rosario, was an undercover agent with the Entertainment Software Association. He told jurors Wednesday that he paid Crippen $60 in 2008 to modify an Xbox, and secretly videotaped the operation. Rosario had responded to Crippen’s advertisement on the Internet and met Crippen at his Anaheim house.

All of that had been laid out in pretrial motions. But during his testimony, Rosario also said Crippen inserted a pirated video game into the console to verify that the hack worked. That was a new detail that helped the government meet an obligation imposed by the judge that very morning, when Gutierrez ruled that the government had to prove Crippen knew he was breaking the law by modding Xboxes.

But nowhere in Rosario’s reports or sworn declarations was it mentioned that Crippen put a pirated game into the console. During the opening statements shortly before Rosario’s testimony, defense attorney Koren Bell told jurors that there would be no evidence of that kind.

Defense attorney Callie Steele objected to the new testimony. And as court was to get underway here early Thursday, prosecutor Chiu told the judge that he first learned of Rosario’s newfound recollection days before trial. Chiu conceded he never forwarded that information to the defense.

“That fact was disclosed on Sunday,” Chiu told the judge. “We should have disclosed that to the defense right away.”

In light of that omission and “based on fairness and justice,” Chiu moved to dismiss the case, conceding that the government had made errors in its prosecution.

Jurors, who heard only one day of testimony, left the courthouse with mixed opinions on the case. “When we left yesterday, I was thinking, ‘What are we doing here?’” said juror Paul Dietz, a 27-year-old actor. He said he “probably would have” acquitted.

Another juror, Jerry Griffin, a 63-year-old trial attorney, said “I think Microsoft has a right to protect its proprietary information.”

Steele, one of Crippen’s three publicly appointed defense attorneys, said afterward that the government last year offered a plea deal in which the defendant would get probation and have his computer usage restricted in exchange for pleading to two felonies.

Rejecting that and going to trial, she said, “was a roll of the dice.”

“This was a risk that needed to be taken,” she added.

A felony conviction, she said, would have precluded Crippen from fulfilling his dream of becoming a high school special-education and math teacher.

Crippen said he has a year left of school before he gets a liberal arts degree from Cal State-Fullerton. His studies have been on hold since he was indicted last year.